CG and HG Windsor Pty Ltd v Waterman [2013] QCAT 618

CITATION: CG and HG Windsor Pty Ltd v Waterman [2013] QCAT 618 PARTIES: CG and HG Windsor Pty Ltd (Applicant) v Guy Waterman (Respondent) APPLICATION NUMBER: BDL299-12 MATTER TYPE: Building Matters HEARING DATE: 5, 6 and 7 August 2013 HEARD AT: Brisbane DECISION OF: Member Howe DELIVERED ON: 7 November 2013 DELIVERED AT: Brisbane ORDERS MADE: 1 The application of the builder is dismissed. 2 The counter-application of the owner is dismissed. 3 No order as to costs. CATCHWORDS: Variations – recovery of the cost of variations by a builder – variations failing to comply with statutory requirements – quantum meruit – progress payment claims outside the terms of the contract – suspension of works - termination of contract –measure of damages – nature of building contracts – entire contract – set-off - defects and incomplete work Queensland Civil and Administrative Tribunal Act 2009 s 24(1)(c) Domestic Building Contracts Act 2000 ss 44, 79(4), 84(2) and (4) Queensland Building Services Authority Act 1991 s 42(3) Better Homes Queensland Pty Ltd v O'Reilly & Anor [2012] QCATA 37 Allaro Homes Cairns Pty Ltd v O‟Reilly and Anor [2012] QCA 286 -- 1 of 19 -- 2 Ownit Homes Pty Ltd v Batchelor [1981] 2 Qd R 1 24 Robinson v Harman [1848] EngR 135 Bellgrove v Eldridge (1954) 90 CLR 613 Parry & Anor v Ewart [2000] QDC 54 Avilake Pty Ltd v Tucker & Anor [2012] QCAT 41 McDonald v Dennys Lascelles Ltd (1933) 48 CLR 457 Rocci & Anor v Diploma Construction Pty Ltd [2004] WASC 18 Tan Hung Nguyen v Luxury Design Homes Pty Ltd [2004] NSWCA 178 Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd [2012] NSWCA 184 Mertens v Home Freehold [1921] 2 KB 526. Amann Aviation Pty Ltd v Commonwealth (1990) 174 CLR 64 Ventura v Svirac [1961] WAR 63 APPEARANCES and REPRESENTATION (if any): APPLICANT: The Applicant was represented by Mr Dearlove, Solicitor, of Shine Lawyers RESPONDENT: The Respondent was represented by Mr Thomson of Counsel instructed by Hemming and Hart REASONS FOR DECISION [1] On 18 July 2011, CG and HG Windsor Pty Ltd, builders (Mr Windsor) agreed to renovate Mr Waterman‟s house on North Stradbroke Island. They signed a contract. The agreed cost for the work was $395,296.95. [2] In July 2011 they agreed to add a deck to the works for an additional $14,684. [3] The contract provided for commencement on 23 January 2012. In fact construction didn't start until 14 February 2012 through no fault of Mr Windsor. Completion was due for 25 June 2012. [4] Throughout the project numerous additional variations were requested by either Mr Waterman or his son. None of the variations were reduced to writing signed by Mr Waterman as required by s 82 of the Domestic Building Contracts Act 2000 (the DBC Act). [5] Mr Windsor claimed the variations as extras with his first, second and fourth progress claims. These were all paid by Mr Waterman. [6] The contract stipulated for payment of a deposit, four progress payments and a final payment on practical completion, all certified by the architect. -- 2 of 19 -- 3 [7] In fact, after payment of the deposit, Mr Windsor submitted five intermediate progress claims. Including the deposit, approximately $375,504.95 was claimed up to and including the “fifth” progress claim, referable to work under the contract excluding variations, and that sum was paid by Mr Waterman. [8] The variations at that stage amounted to some $26,438.31. Those variations were also paid. [9] A “sixth” progress claim was made on 7 September 2012. In an invoice attached to the Form 3 Progress Claim document, an amount of $20,000.01 was claimed as “owing on contract”. The value of variations claimed was $53,721.91. [10] Mr Waterman disputed this sixth progress claim. He paid $19,740 for variations associated with the laundry, but not the remainder. The parties fell out. They argued on site. [11] Solicitors became involved. Mr Windsor suspended work under the contract and commenced these proceedings in the Tribunal seeking the balance of monies outstanding in respect of the contract plus variations totalling $66,653.90. [12] Mr Waterman purported to terminate the contract by notice dated 24 October 2012. He has filed a counter-application seeking damages for the builder‟s breach of contract. The Variations [13] The builder‟s entitlement to recover the variations is subject to the strictures of s 84 of the DBC Act. That provision allows a builder to recover an amount for a variation only if the variation is signed by the owner and in the appropriate form, or, if not, only with the Tribunal's approval. The Tribunal may approve recovery if either there are exceptional circumstances to warrant the conferring of such entitlement, or the building contractor would suffer unreasonable hardship otherwise, and it would not be unfair to the building owner for the builder to recover the amount.1 [14] None of the variations were signed by Mr Waterman. That is a requirement of the legislation and it needs be done before the work is done.2 [15] Mr Windsor submits that there are exceptional circumstances warranting the Tribunal‟s approval of payment to him for the variations. [16] First, he says all the variations were in writing in Form 6. They were supported by invoices and appropriate documentation. They were all approved for payment by Mr Waterman's architect. Variations 1 through 7 were paid in full. It is only the later variations 8 through 20 that are disputed. [17] Further, all the variations were requested by either Mr Waterman or his son. 1 DBC Act s 84(2) and (4). 2 DBC Act s 79(4). -- 3 of 19 -- 4 [18] Additionally, he says it was very difficult to communicate with Mr Waterman. Effectively, he could only contact him on weekends. Given that it was simply not practical to get the variations signed. With the extensive variations required, if he had waited to get each variation signed before he did the work there would have been massive delays in completing the project. [19] Further, Mr Windsor will suffer unreasonable hardship if he isn‟t paid for the variations. Most of them involve payments to other tradesmen and materials purchased. The only profit to Mr Windsor is approximately $3500, his builder‟s margin. To make the builder both do the work and pay for Mr Waterman's project amounts to unreasonable hardship. It is not unfair to make Mr Waterman responsible for those costs. [20] Most of these submissions have been canvassed in the Tribunal before now, and particularly in the matter of Better Homes Queensland Pty Ltd v O'Reilly & Anor.3 [21] There the builder argued that the work was done at the owner‟s request; that the work was in fact done; that the work was done to the owner‟s satisfaction; that the builder was not profiting from the work; that the variation was documented, though poorly, and the construction concerned proceeded as a consensual arrangement between builder and owner. [22] None of those circumstances were deemed exceptional circumstances within the contemplation of s 84(4) to warrant conferring on the builder a right to recover the cost of the variations. That conclusion was confirmed on appeal.4 I do not see that the matter before me is very much different from the circumstances of the builder and owner in Better Homes Queensland Pty Ltd. [23] Mr Windsor also makes the submission however that communication was a problem, and that was not addressed in Better Homes Queensland Pty Ltd. [24] Mr Windsor said there was a problem with written communications particularly between the island and the mainland. Mr Hills the architect also considered there were problems communicating from the island. On being questioned more closely, however, he agreed it was not impossible to communicate with the mainland, and also one could possibly go to the local post office and use its facilities.5 He offered however that with cottage construction, it is often not practical to stop and have variations signed.6 According to Mr Hills, whilst waiting to get a variation signed is the correct procedure, it was contrary to conventional practice and it would be a nightmare to get the job done. [25] According to Mr Maskell however, a plumber who did work on the site, there was no great difficulty communicating by email. He agreed in cross- examination that he had no great problem communicating by phone or email from the island.7 3 [2012] QCATA 37 at [54]. 4 Allaro Homes Cairns Pty Ltd v O‟Reilly and Anor [2012] QCA 286 at [18] per North J. 5 T1-120 L40. 6 T1-121 L16. 7 T2-69 L1-8. -- 4 of 19 -- 5 [26] I do not accept that the difficulties faced by the builder with communication was such as to prevent him from complying with the law requiring him to obtain a signature to the variations before doing the variation work. [27] In my view what the architect and the builder are really talking about is convenience or lack thereof. It was not convenient to wait for variations to be agreed and signed before doing the work. There may have been delay in electronic communications, but nothing so significant, given the evidence of Mr Maskell, as to prevent Mr Windsor complying with the statutory requirements. He was well aware of them. I find this issue about lack of communication does not amount to an exceptional circumstance within the meaning of s 84(4). [28] The answer for the builder was to have taken any such problem about communication into account when pricing and planning the job. Prior to this he had built a home for himself on the island and built three other homes on North Stradbroke Island and three on South Stradbroke Island. [29] I must conclude that there were no factors amounting to exceptional circumstances under s 84(4) to warrant approval of recovery of the variations the subject of Mr Windsor‟s claim. The builder‟s claim to recover the variations therefore fails. Quantum Meruit [30] Might Mr Windsor succeed with an alternate claim for the value of the variations in quantum meruit? [31] The answer must be no given the terms of s 84 of the DBC Act. Section 84 is concerned with the necessary procedural process of recovery, not substantive causes of action. The statutory directive that a claim for recovery of a variation be brought in the manner required, that is to say by application for approval to the Tribunal, applies to all and any claims, including a claim in quantum meruit. [32] Any proposition that a claim in quantum meruit avoids the statutory strictures was rejected by Holmes J in Allaro Homes Cairns Pty Ltd v O‟Reilly.8 Background [33] Mr Windsor issued progress claim 6 on Friday, 7 September 2012 for $73,721.92. The accompanying invoice itemised the claim in part as $20,000.01 “owing on contract” and $19,974 for the laundry “as quoted”. [34] The following Thursday, 13 September 2012, Mr Waterman and his son attended the site. Mr Waterman produced a list of defects he wanted rectified. Mr Windsor said it was not an appropriate time to talk about that. The value of the variations included with progress claim 6 was discussed. They totalled $53,721.91. Mr Waterman said he didn't think he should have to pay for them. 8 Op cit at [3]. -- 5 of 19 -- 6 [35] Mr Waterman wrote to Mr Windsor on 19 September 2012 and made it clear that in his opinion the claim for $20,000.01 could only be a claim for practical completion and the necessary notices preceding that had not been given. He also made further mention of the list of defects. [36] Mr Windsor replied the next day that he would remedy defects. He made no mention of his earlier claim to $20,000.01 “owing on contract”. [37] The damage had been done to the relationship between the parties. Mr Windsor retained solicitors. [38] Mr Waterman sent an e-mail to those solicitors on 5 October 2012 “confirming” that Mr Windsor had suspended work under the contract. Mr Waterman said Mr Windsor had no right to do that. He also said that the demand for $20,000.01 was a breach of the contract. He again raised issues about defects, and mentioned potential loss of rental after 21 September 2012, referring to that as an anticipated date of completion. [39] On 9 October 2012, Mr Waterman again raised with Mr Windsor‟s solicitors the builder‟s claim for $20,000.01 and that that claim could only be for practical completion. He disputed that stage had been reached. [40] The solicitors responded that day to advise their client had never suggested or intimated the property had reached practical completion. They wrote: „(t)he last account rendered to you was for a progress payment. You have not paid it. In fact you have not even disputed it. Clause 17 is apposite…. Accordingly you are in breach of the contract.… Please consider this a notice to remedy this breach‟. [41] By facsimile dated 12 October 2012, Mr Waterman forwarded a notice to Mr Windsor pursuant to clause 27 of the General Conditions of Contract advising Mr Windsor he was in substantial breach of the contract, amongst other things, given his failure to proceed to practical completion with due diligence and failure to remedy major defects and to perform building work with reasonable care and skill. [42] By letter dated 17 October 2012 from Mr Windsor‟s solicitors to solicitors retained by Mr Waterman, the owner was advised that application had been filed in the Tribunal concerning the matter and the letter should be taken as notice that, pending the Tribunal determination of the dispute, Mr Windsor would not complete the work under the contract and therefore the letter constituted notice of suspension of work under the contract. [43] By facsimile transmission dated 24 October 2012, Mr Waterman gave notice of his termination of the contract as a result of the builder's failure to remedy substantial breaches of the contract and because the builder had unlawfully suspended work (amongst other reasons). Mr Waterman asserted the conduct of the builder amounted to repudiation of the contract. -- 6 of 19 -- 7 Termination [44] Mr Windsor was clearly not entitled to issue progress claim 6. The contract stated the stages for progress claims in schedule D to the contract. There was to be a deposit, four “interim” progress claims, and then final payment on practical completion. All progress payment claims were required to be certified by the architect. According to the architect none were,9 and of particular significance, certainly not progress claim 6. The stages for payment were based on dates rather than stages of renovation. [45] Variations were sought but the schedule of progress payments wasn‟t changed. As at date of issue of progress claim 6 the only payment outstanding and claimable by the builder under the contract was the payment on practical completion. [46] The erroneous nature of progress claim 6 becomes apparent when one considers the correspondence from Mr Windsor‟s solicitors to Mr Waterman denying that it was for practical completion and yet at the same time failing to identify it by reference to one of the staged progress claims set out in schedule D to the contract.10 [47] Progress claim 6 could not be the claim on practical completion because it had not been certified by the architect, the notice provisions stipulated in clause 15 of the contract and s67 of the DBC Act had not been complied with and Mr Windsor‟s evidence was that approximately ten days work remained to be done. Mr Hills, the architect, identified the problem when he said the variations had confused the issue.11 [48] As to Mr Waterman‟s demand to remedy defects, he was not entitled to demand that prior to practical completion. The defects were minor, not major. The defects were not untypical of defects that builders are commonly required to remedy during the defects liability period.12 The minor nature of the defects is readily apparent from the joint report of the experts and from the evidence of the architect. Mr Waterman elevated them to the status of major defects without justification or cause. I consider Mr Waterman was under no illusion that the sixth progress claim was not intended to be for practical completion in terms of the contract. [49] Mr Windsor however suspended work under the contract. He had no entitlement to do that, regardless of Mr Windsor‟s list of defects. I accept notice of the suspension of work under the contract was advised to Mr Waterman by Mr Windsor‟s solicitors prior to 5 October 2012. They did not refute that suggestion when it was put to them in Mr Waterman‟s email of 5 October 2012 when one would have expected them to do so given the seriousness of that step. 9 T1-126 L4. 10 Ex 5 page 451 email dated 9 October 2012. 11 T1-126 L14. 12 As in Ownit Homes Pty Ltd v Batchelor [1981] 2 QdR 124 at 134. -- 7 of 19 -- 8 [50] In any case, certainly on 17 October 2012, those solicitors confirmed in writing that their client had suspended work under the contract, and that they had applied to the Tribunal and, until the Tribunal determined the issues between the parties, the builder could not complete the works. [51] The suspension of work was a breach of clause 12 of the contract whereby Mr Windsor agreed to diligently carry out work under the contract and not, except as permitted by the contract, delay, suspend or fail to maintain reasonable progress in the performance of the building work. [52] Mr Waterman needed the property finished. He wanted to rent it out. As it stood as at date of suspension, he could not do that and the property was useless to him for that purpose regardless that completion was certainly near. [53] The course adopted by Mr Windsor constituted unreasonable suspension and delay in performing the contract and amounted to a substantial breach of the contract as stipulated for by clause 27 of the contract. It also amounted to repudiation of the builder‟s obligations under the contract giving Mr Waterman the right to terminate under the general law. [54] By clause 27 Mr Waterman became entitled to issue notice of intention to terminate the contract if that breach was not remedied within 7 days. He gave that notice. The breach was not remedied. He followed that notice with notice of termination, as he was entitled to do. The Owner’s Claim for Damages [55] Mr Waterman claims general damages of $23,576.65 for the builder‟s breach of contract. That claim is not made pursuant to clause 27 of the contract. At the end of the day the distinction is of little practical significance given clause 27 of the contract permits the party relying on it to claim for loss and damages occasioned by the breach or termination subject only to set off payments “otherwise due” by the party terminating. [56] The basic purpose of any award of damages is to restore an injured party to the position he would have been in had the wrongful act not occurred.13 In the case of incomplete building work the usual remedy is the cost of completing the building work in accordance with the contract.14 [57] There are two components of the claim for damages associated with completing the actual building work under the contract. The first is the cost claimed to rectify defects in the work completed under the contract, and the second, the cost of incomplete work outstanding and to be done under the contract. 13 Robinson v Harman [1848] EngR 135. 14 Bellgrove v Eldridge (1954) 90 CLR 613; [1954] HCA 36 at [5]: “In the present case, the respondent was entitled to have a building erected upon her land in accordance with the contract and the plans and specifications which formed part of it, and her damage is the loss which she has sustained by the failure of the appellant to perform his obligation to her. This loss cannot be measured by comparing the value of the building which has been erected with the value it would have borne if erected in accordance with the contract; her loss can, prima facie, be measured only by ascertaining the amount required to rectify the defects complained of and so give to her the equivalent of a building of her land which is substantially in accordance with the contract.” -- 8 of 19 -- 9 Defects [58] The defects have been considered by experts called by each party. They have prepared a joint report and considered 29 items of claim. Of those they are agreed on the existence of defects and their costs of rectification of 8 of those items totalling $970. [59] Before proceeding to consider the items of disagreement it is appropriate to note that some of the defects concern work done in accordance with the variations. Those variations did not comply with the statutory requirements. Nevertheless, by s 92 of the DBC Act the failure to comply with a requirement under the Act does not make the contract illegal, void or unenforceable. This extends in my opinion to variations to a building contract upon which payment is made. The same warranties as to exercise of reasonable care and skill and appropriate construction incorporated into the work by the DBC Act15 or the contract applies. [60] There are 21 items on which the experts disagree: Termite management (ant capping) – whether the stainless steel ant capping material as specified for installation in the specifications are for aesthetic or pest protection purposes, their cost and installation was part of the contract and the owner was entitled to have the work done in accordance with the contract.16 I accept Mr Dixon‟s cost estimate to have that work performed of $368 as a reasonable cost of rectification. Laundry landing steps – though this item concerned a variation to the original contract, it was a paid variation. The builder should have been aware of the requirements of the Building Code to build a verandah at the laundry exit. Both experts agree it should have been done. The matter should have been raised with the architect, and it doesn‟t appear to have been. Making such enquiry is carrying out the work in an appropriate and skilful way and with reasonable care and skill. The claim is allowed at Mr Helisma‟s more conservative calculation of $380. Flashing – the builder‟s expert agrees flashing has not been installed as specified. Accordingly, the owner is entitled to get that which was agreed upon as part of the contract price regardless of whether paint protection should prove adequate to the task.17 The cost estimate of $1482 is allowed. Head flashings over laundry windows – again this was work associated with a paid variation. Both experts appear to agree it is defective work for flashing not to extend 25mm past window openings. Mr Dixon says there are 5 windows affected, Mr Helisma says 3. There is no estimate of the cost of rectification using zincalume rather than stainless steel. In the circumstances I allow half the estimate of cost of rectification given by Mr Dixon, who is the only one who makes an estimate, namely $540. 15 DBC Act s 44. 16 Bellgrove v Eldridge op cit. 17 Bellgrove v Eldridge op cit. -- 9 of 19 -- 10 Highlight windows – these were installed by the glazier at the direction of the builder.18 The requirement to perform this work to an acceptable standard is covered by obligations under the original contract. I accept the cost to weatherproof the window is a defect cost payable by Mr Windsor. Mr Dixon estimates $350. I allow that claim. Handrails – this work appears to be associated with variations. I do not conclude that all the original specifications for the original contract, such as concealed fixings, were necessarily incorporated into the variations, particularly given some variations necessarily conflict with the original specifications, such as where timber posts are replaced with steel. Mr Dixon says the selection of face and material on the handrails is poor. Mr Helisma says the work is within acceptable industry standards. I accept that the work has been done in accordance with industry standard and concealed fixing was not an end result requirement for the work. Gap under door – this claim appears to concern the laundry. Given the work associated with the laundry is the subject of a variation, and apparently a major one at that, I do not conclude the Hills specification item 10 Joinery referred to by Mr Dixon necessarily has application. Drawing 499/2A19 shows fall. Mr Helisma says there is no requirement for a seal at this doorway given the fall and given it is intended to wash out the tiles from the inside. Common sense seems to indicate water entry at the doorway will not be of any significance. I conclude a weather strip at the doorway was not required and is in accordance with the intention of the variation. Decking – Mr Dixon concedes there is no claim here now. Pencil marks on decking – this issue concerns a matter of handover between trades. The trades associated were carpentry and painting. The painter was at fault in proceeding with the work without an acceptable substrate.20 By doing so he accepted the surface was appropriate for his work. The builder is now not responsible for the resulting problem. Laundry floor – the experts disagree whether a floor waste or fall to the door is required for a laundry. There is a signed Form 16 Certificate certifying as to waterproofing exhibited to Mr Windsor‟s affidavit.21 Mr Windsor says it covers the waterproofing of the laundry. I accept that is sufficient in the circumstances. Defective flashing – this item was not identified through observation by the experts. The repairer, Mr Waterman‟s son, was not called to give evidence to confirm the leak or the repair work. I do not allow this claim. Architrave at laundry – as previously stated, I do not accept the original specifications were fully incorporated into the work associated with the laundry variation. Mr Helisma concludes the work is not defective and I so find. 18 Ex 12 at [12]. 19 Ex 5 page 204. 20 Parry & Anor v Ewart [2000] QDC 54. 21 Ex 5 at [86] and attachment MM at page 468. -- 10 of 19 -- 11 Finish to laundry bathroom – I accept Mr Helisma‟s comments, the issues are not defective work but the skirting tiles require sealant at a cost of $35. Timber reveal – the butt joint in the timber reveal is unsightly.22 A single piece of timber would have been appropriate given the value of the home. The cost of rectification of $45 is allowed. Timber trims – there are different size timber trims used in the upper level bathroom. Uniform trim was appropriate. I allow the cost of replacement at $45. Accordingly, the cost of rectification of all 29 items of defective building work amounts to $4215. Incomplete Work [61] Here the experts agree on most matters save 3 items of claim. The matters in agreement total $1,465. Balustrades – the glass for the balustrades was supplied but the costs of fitting the glass remains outstanding. I see no warrant for the additional costs associated with erecting temporary barricades. I accept Mr Helisma‟s estimate of $720 to complete installation. Ladder and gate to whale tower – this is covered by the contract but has not been done. The specification is for timber and the cost of that as estimated by Mr Helisma is $300, which seems reasonable to me. That is the amount allowed. Gaps under bi-fold windows – the experts seem to agree that a gap exists and it should not. I allow the cost of a timber moulding at $40 as proposed by Mr Helisma. The total able to be claimed for incomplete work is therefore $2,525. Lost Rental [62] According to Counsel for Mr Waterman, Mr Waterman‟s real estate agent is the source of the claim for lost rental. That gentleman provided evidence about likely rental returns for the property, but he said nothing about the circumstances creating an entitlement to any such claim. [63] Mr Scott, the real estate agent, filed an affidavit saying that if the property had been available for rental between 24 October 2012 and 18 January 2013 the property could have been expected to earn rents totalling somewhere between $6,900 and $8,700.23 [64] He also said in his evidence however that Mr Waterman had advised him on 30 November 2012 that the house was ready for renting. I cannot understand how any claim for lost rental can therefore be made in respect of 22 Ex 27 photo 6.2.30. 23 Ex 25. -- 11 of 19 -- 12 December 2012 or January 2013 attributable to default on the part of Mr Windsor. [65] As to November 2012, Mr Scott said the property would not have been available for the “schoolies” week of 17 to 24 November 2012. That left a possible three weeks in November. [66] Mr Windsor has estimated there was less than 10 days work left to complete the project, including correction of minor defects.24 Having regard to the list of minor defects and incomplete works, I concur. I cannot see why the owner could not have completed those outstanding works by early to mid November 2012 if rental return was an issue. [67] Having said that however, Mr Scott was of the opinion that in the three weeks possible in November there was a good chance there would not have been any bookings anyway. More than that, he said it probably would not have rented.25 [68] In the circumstances, it has not been established to my satisfaction that Mr Waterman suffered any real loss under this head of claim. Surveyor’s Fees [69] Mr Waterman also seeks to recover $2,916.10 he paid to Mr Windsor for the costs of a surveyor. [70] The specifications to the contract provided as a preliminary item that „where the building height exceeds 8 metres at any point, the builder is to allow and pay for Surveyor to check the height at start of construction and at a stage when the built height is determinable – and provide a Form 16 height certificate‟. The specifications formed part of the contract documents. [71] The quote given by Mr Windsor also formed part of the contract documents. The parties initialled both the specifications and the quote when executing the contract. In the quote it is stated: „no allowance at this stage has been made for a surveyor. No allowance at this stage has been made for any extra inspections if required‟.26 [72] Mr Windsor subsequently charged the cost of obtaining a surveyor‟s certification, $2,916.10, in variation 7 claimed in progress claim 5. That was paid by Mr Waterman. [73] How are the conflicting contractual terms of the contract to be best interpreted? In my opinion, the general statement as to provision for survey in the specifications should give way to the particular statement in the quote from the builder that the cost of survey was not included in the contract price. [74] Mr Waterman also says however, that variation 7 was not signed by him prior to the work being undertaken in breach of s84 of the DBC Act. Accordingly he paid the cost associated with that variation under a mistake of 24 Ex 5 at [85]. 25 Transcript p3-51 L29. 26 Ex 5 at [35] and page 149. -- 12 of 19 -- 13 fact or law believing the builder had an entitlement in fact or law to the payment. On that basis he seeks recovery of the amount paid. [75] It is important to carefully consider the limitations of s 84. This provision is unlike that in s 42(3) of the Queensland Building Services Authority Act 1991 providing that an unlicensed person who carries out building work is not entitled to any monetary or other consideration for doing so. Here the proscription against variations in breach of the requirements of the DBC Act is the stricture placed on the builder‟s right of recovery of the variation.27 [76] As stated by s 92 of the DBC Act, no failure to comply with a requirement under the Act makes the contract illegal, void or unenforceable. [77] Mr Waterman is a Barrister. I conclude he well understood the terms of the contract and I conclude he understood full well the quote given by the builder, which formed part of the contract, did not include the costs of survey. It was, I find, on this basis he paid the variation. There was no mistake of fact. There was also no mistake of law. Having paid the variation the stricture placed on recovery by s 84 concerning recovery of monies owing and not paid has no application. [78] He is not entitled to recover the $2,916.10 he paid Mr Windsor for the costs of a surveyor. The Builder’s Claim to Money under the Original Contract [79] Is Mr Windsor entitled to the $20,000.01 he claimed under progress claim 6, or an amount representing the value of the work done but not been paid for? [80] The matter was addressed very shortly by Counsel for the owner on the following basis. A building contract is an entire contract, even if there are staged payments, and the right to a staged payment cannot survive termination. That is to say, if the building contract is construed to be an entire contract, then if the builder breaches the contract and the owner terminates the contract because of that breach, the builder cannot claim for staged payments. [81] Entire contracts are premised on the principle that the parties intend complete performance of all the work agreed to be done under the contract be done as a condition precedent to payment. [82] The effect of that is, upon termination of an entire contract because of another party‟s repudiation of their obligations under the contract, only those rights that have actually accrued as at the date of termination continue and are recoverable. As stated by Dixon J in McDonald v Dennys Lascelles Ltd:28 When a party to a simple contract, upon a breach by the other contracting party of a condition of the contract, elects to treat the contract as no longer binding upon him, the contract is not rescinded as from the beginning. Both parties are discharged from the further performance of the contract, but rights are not divested or discharged which have already been unconditionally acquired. Rights and obligations which arise from the partial execution of the contract and causes of action which have accrued from its 27 Avilake Pty Ltd v Tucker & Anor [2012] QCAT 41 at [144]. 28 (1933) 48 CLR 457 at 476-477; [1933] HCA 25. -- 13 of 19 -- 14 breach alike continue unaffected. … (W)hen a contract, which is not void or voidable at law, or liable to be set aside in equity, is dissolved at the election of one party because the other has not observed an essential condition or has committed a breach going to its root, the contract is determined so far as it is executory only and the party in default is liable for damages for its breach. Entire Contracts [83] Whether or not a contract is an entire contract depends on the construction of the contract.29 Most building contracts are construed as entire. “A partially completed building is of little use to the owner of the land upon which it is to be constructed.”30 [84] A contract may make provision for staged payments throughout the term of the contract but still be an entire contract. In Ownit Homes Pty Ltd v Batchelor Justice Thomas noted: (t)he so-called „progress payments‟ in the present case were not conditioned upon anybody‟s certification. They were payments at specified convenient stages in the construction towards the full contract price. Such payments were obviously to be provisional and subject to adjustment at the end of the contract…. I do not regard the builder‟s rights under the present contract as „accrued due‟ in the sense that they can independently survive a subsequent rescission…. It seems to me when a rescission ensues, the right to claim such a progress payment becomes merged in the right to recover damages for breach of the contract.31 [85] In that matter Thomas J held the builder was entitled (given the default of the owner) to damages rather than to a claim for the progress payments because the builder‟s rights to progress payments had not accrued due as at date of termination. Once the contract was terminated the right to claim progress payments ended or merged into the builder‟s right to damages for breach of contract. [86] It should be noted, had the default in Ownit Homes been attributable to the builder (which it was not), given the contract was entire, the right of the owner to recover damages for breach of contract from the builder would have similarly excluded the builder from an entitlement to recover for any unaccrued progress payments. [87] It becomes a nice point whether the value of the work done by a defaulting builder in such circumstances is to be taken into account when assessing the owner‟s damages. [88] Before that is addressed however, how is the contract in the present matter to be categorised? In Tan Hung Nguyen v Luxury Design Homes Pty Ltd32 the contract provided as follows: If the contractor: · is unable or unwilling to complete the work or abandons the work; · suspends the work before completion without reasonable cause; … · fails to proceed diligently with the work; … 29 Hoenig v Isaacs [1952] 2 All ER 176 at 181 per Denning LJ. 30 Tan Hung Nguyen v Luxury Design Homes Pty Ltd [2004] NSWCA 178 per McColl at [27]. 31 [1983] 2 QR 124 at 134-135 per Thomas J. 32 Op cit. -- 14 of 19 -- 15 the owner may, if such default can be remedied, notify the contractor in writing that unless the default is remedied within 10 working days or such longer period as specified, the owner will end the contract. If the contractor does not comply with the owner's request within the time allowed, or if the default cannot be remedied, the owner may end this contract by giving written notice to that effect to the contractor. If the owner ends the contract due to the fault of the contractor, any unfixed materials or fittings on the site may be retained by the owner. If the reasonable cost of completion of the work exceeds that which would have otherwise been due under the contract the difference will be a debt payable by the contractor to the owner. Should the reasonable cost of completion be less than otherwise due under the contract the difference will be a debt payable to the contractor. Until completion of the work the contractor will not be entitled to any further payment under this contract. However, nothing contained in this clause may take away any right the contractor may have to payment under the dispute resolution procedure in Clause 26. [89] The New South Wales Court of Appeal concluded the clause indicated how the rights of the parties were to be adjusted if the contract was terminated for default by the builder. It was clear the parties did not intend the contract to be an entire contract.33 Though the builder had defaulted under the contract, the value of any work done by the builder was to be taken into account when determining balances owing and though the default was that of the builder, in the end result an order might be made in favour of the builder for balance monies owed by the owner under the contract. [90] In the present matter, the relevant provision of the contract is clause 27 which provides: if:  a party is in substantial breach of this contract, and  the other party gives a notice to the party in breach stating the intention of the party giving notice to terminate the contract if the breach is not remedied within seven business days from the giving of the notice, and  the breach is not so remedied  then the party giving that notice may terminate this contract by a further written notice given to the party in breach and may recover from the party in breach all damages, loss, cost or expense occasioned to the party so terminating by or in connection with the breach or that termination and may set off such claim against payment otherwise due by the party so terminating. The right to terminate under this condition is in addition to any other powers, rights or remedies the terminating party may have. [91] In my opinion the agreement between the parties in Tan Hung Nguyen v Luxury Design Homes Pty Ltd is very much different to that in the matter at hand. There is no express statement incorporated into the Windsor/Waterman contract evidencing an intention by the parties that if the contract terminates through default of the builder the value of the building work done but not certified payable by the architect as a due progress claim is to be taken into account in determining a balance due between the parties. The words “otherwise due” used in clause 27 do not do more than suggest to my mind that only accrued rights as at date of termination are contemplated by that expression. 33 Op cit at [5]. -- 15 of 19 -- 16 [92] Certainly the terms of the contract in Tan Hung went much further and, in my opinion, if the parties intend by their contract to alter the general law on the subject of damages usually applicable on termination of such contracts, explicit reference is necessary to convey that contrary position. Given that, I find the clause does nothing more than state the position otherwise generally applicable on termination of entire contracts. [93] To the extent the progress payments required certification by Mr Hills, the architect, the comments of Thomas J are apposite. I conclude that there was no intention here to have any „adjustment‟ at the end of the contract. No adjustment is necessary if the architect examines each progress claim and he certifies that it should be paid. [94] There is nothing contradictory in concluding however that a contract is entire and subject to payment by stages throughout the term of the contract.34 I conclude such is the contract in the present case. [95] Under the contract here, progress payments appropriately claimed were intended to be considered “accrued due” in the sense that they independently survived termination.35 Any progress claims outstanding as at date of termination however merge into the claim for damages for breach of contract by the party not in default. I discern no contrary intention from the use of the expression “may set off such claim against payment otherwise due by the party so terminating” in clause 27 of the contract. [96] With an entire contract with staged payments, the rules as to entire contracts also apply to the last or the last few instalments, or any general balance outstanding if the contract ends before the instalment or instalments convert to accrued rights due and owing: „In most contracts for major works the contractor is given an express right to payment by instalments on account of the contract price as the works proceed, and so to that extent no question of an entire contract arises. But the rules as to entire contracts will still apply to the last instalment, or to any general balance due, or to any individual instalment if the work is abandoned or brought to an end before the instalment is completely earned.‟ The entire contract principle is „an essential and necessary sanction to discourage the deliberate breaking or abandonment of contracts, which would be absent if in such cases the builder was entitled to demand partial payment notwithstanding his own breach‟ 36. [97] In this matter I have found that the sum of $20,000.01 claimed by the builder can only be referenced to a claim for practical completion. There was no provision in the contract to claim it otherwise. However, practical completion was not reached. By s67(3) of the DBC Act Mr Windsor was not entitled to receive all or any part of the payment for practical completion unless the requirements detailed in s67(4) and (5) had been satisfied. They were not. Neither was the progress claim certified by the architect as required. 34 Rocci & Anor v Diploma Construction Pty Ltd [2004] WASC 18. 35 See Ownit Homes op cit at 134. 36 Tan Hung Nguyen v Luxury Design Homes Pty Ltd op cit at [22] per McColl J citing Hudson‟s Building and Engineering Contracts (Sweet & Maxwell 1995 11th Ed) page 476, 4.006 – 4.007. -- 16 of 19 -- 17 [98] Accordingly, there was no accrued entitlement to that sum on the part of Mr Windsor as at the date of termination. His claim to be paid that progress claim did not survive the termination and he cannot recover it now. Giving Credit For the Balance Due [99] I have found Mr Waterman was entitled to sue for damages for breach of contract. He has done so. Any difference between such a claim brought pursuant to clause 27 of the contract or as a claim for general damages is academic given the wording of clause 27. [100] But given he has sued, he must understand this. If an owner sues for damages for breach of contract then the general rule of the measure of damages set out in Robinson v Harman37 applies, that is, the owner is entitled to recover such an amount as will put him in the same position, so far as money can do so, as if the contract had been fulfilled. But that will mean that in assessing damages for breach of contract the normal rule applies and credit must be given for any benefit acquired under the contract. “(I)f under a building contract the owner decides to sue for damages he must give credit for what the work would have cost if properly completed or performed – Mertens v Home Freehold [1921] 2 KB 526. This can also be expressed by the rule that a party suing for damages for breach of contract may only recover for the net loss sustained, that is, the value of the benefit of the contract fully performed less the contracted price for securing such performance - Amann Aviation Pty Ltd v Commonwealth [1991] HCA 54; (1990) 174 CLR 64. Accordingly, an owner under a building contract needs to appreciate that an entire performance defence is an alternative to advancing a claim for damages and that if damages are claimed credit must be given for the sums due under the contract. The correct position is described in "Hudsons: Building and Engineering Contracts" (supra) in the following passage at 476: “Thus where the contract is entire, the owner may get the benefit of valuable works not entirely completed by the builder without having to pay for them, unless the circumstances are such as to justify a quasi-contractual remedy. So a builder who has not fully completed the work, through no fault of the owner, cannot overcome his difficulty by ignoring the contract and sue on a quantum meruit for the work he has done. However, the rigours of this rule are often considerably reduced because, in a large number of cases where there is not entire performance, the owner may decide to sue the builder for damages for breach of contract. If he does, he will, on general principles of damages for breach of contract, have to give credit for what he would have had to pay had the contract been properly performed. But in a case where the owner decides not to sue he may derive considerable advantage from the foregoing rules, which are, however, an essential and necessary sanction to discourage the deliberate breaking or abandonment of contracts, which would be absent if in such cases the builder was entitled to demand partial payment notwithstanding his own breach ... .”38 [101] Where entire building contracts are involved, the advantage to the owner on the builder‟s breach is in not suing for breach of contract. That is the argument in any case, on the basis the builder has no right of recovery for the value of work done by him remaining unpaid. However, if the owner sues, then the rule of Robinson v Harman applies and credit must be given to the builder for the unpaid balance of the contract. 37 (1848) 1 Exch 850. 38 Rocci & Anor v Diploma Construction Pty Ltd op cit at [23]. -- 17 of 19 -- 18 [102] There are many cases adopting the rule that a home owner who seeks to recover the cost of properly completing works must give credit for any unpaid balance of the contract price, which is to say the principle in Mertens v Home Freehold.39 However, the cases concerned appear to deal with the scenario that the cost of rectification or completion exceeds the unpaid balance of the contract price, which is not the case here. [103] The builder‟s right to a credit for any unpaid balance of the contract price is a right of set-off, not counter-claim. That was the view of the New South Wales Court of Appeal in Cordon Investments Pty Ltd v Lesdor Properties Pty Ltd40 where it was suggested the builder could recover the balance from the suing owner on a quantum meruit. [104] Bathurst CJ (the other members of the appeal court agreeing with his decision) said this at [194]: Cordon first relied on its earlier contention that Lesdor was not entitled to terminate the Agreement. Alternatively it submitted that if the Agreement was properly construed as an "entire contract" any right to the benefit of valuable works not entirely completed by the Cordon without having to pay for them was lost when Lesdor sued for damages. It contended that a party who elects to sue for damages must give credit for what would have been due and payable to the builder for the work performed in accordance with the contract. It submitted that to the extent that there was a surplus over and above any alleged damages for defective work the primary judge ought to have given "restitution of that amount" to ensure that the parties were put in the same position they would have been had the contract been properly performed. In that context it placed reliance on the judgment of McColl JA in Tan Hung Nguyen supra. At [195]: At the hearing of the appeal senior counsel for Cordon accepted that all that was decided by McColl JA in Tan Hung Nguyen supra was that where a proprietor claimed damages for wrongful repudiation the builder was entitled to setoff a claim for work done based on quantum meruit against that claim. He conceded that what was being sought was an extension of what was decided by her Honour. However, he claimed that Cordon was entitled to the money "as a matter of equity and as a matter of justice", the claim being one "to recover a benefit gained at our [Cordon's] expense in circumstances where it would be unjust and unconscionable for the respondent [Lesdor] to retain it". He stated that this submission was supported by the decision of the Court of Appeal of Victoria in Sopov v Kane Constructions Pty Limited (No 2) [2009] VSCA 141; (2009) 24 VR 510. At [200]: Cordon did not, as I understand, contend that in all circumstances where work had been performed by a party who subsequently renounces the contract, that party could maintain a claim for the value of the work done based on a quantum meruit. It submitted that the right only arose if the party not in breach sued for damages. 39 Op cit; note Ventura v Svirac [1961] WAR 63 and the cases following that authority accepting this principle. 40 [2012] NSWCA 184. -- 18 of 19 -- 19 At [202]: It should be noted that neither the passages from Hudson's 11th ed referred to, nor the judgment of McColl JA, make any reference to the builder having a right to claim reimbursement by way of a quantum meruit. Nor does the authority cited in the relevant passages of Hudson's 11th ed support the proposition: Mertens v Home Freeholds Company [1921] 2 KB 526 That case concerned a claim for damages for failure to complete building works in the manner required by the contract. Lord Sterndale MR uncontroversially stated that the measure of damages recoverable for failure by a builder to complete work was the cost to the plaintiff of completion of the work less any amount that would have been payable to the builder had he complied with his obligations under the contract (at 535, see also Younger LJ at 540). At [203]: These authorities provide no support for the proposition that the commencement of proceedings by the party which has accepted the defaulting party's wrongful renunciation of a contract, enlivens a claim by the defaulting party for recovery of the value of the work claimed to have been done under the contract. Finally at [205]: Further, the proposition sits oddly with the well-established principle that the effect of termination for breach is to discharge both parties from further performance of the contract although rights are not divested or discharged which have already been unconditionally acquired: McDonald v Dennys Lascelles Limited [1993] HCA 25; (1933) 48 CLR 457 at 476-477.” [105] The reality of this for Mr Windsor is that his set-off of the unpaid balance of the contract price exceeds Mr Waterman‟s claim for damages, but he is not entitled to be paid any balance remaining after that. His set-off does not convert to a cause of action for the balance monies. [106] In end result, Mr Windsor has failed on his claim, and Mr Waterman‟s counter-application for damages is met by Mr Windsor‟s set-off for the unpaid balance of the contract price. The appropriate orders are to dismiss both the builder‟s claim and the owner‟s counter-application. Costs [107] Given the final outcome, I conclude the appropriate order is that both parties bear their own and there be no order as to costs. -- 19 of 19 --